ADP and claims data show US employment progress

We got reads from two US jobs data series this morning. And both showed continued forward progress. To me, this speaks to the potential for tapering of the Fed’s large scale asset purchase program in the Fall.

We got the ADP private payroll number first. And that came in at 978,000 jobs added vs the 650,000 that were expected. Macro Strategist George Pearkes noted that in the context of last month’s weak non-farm payrolls number, this beat should shift expectations for Friday’s NFP number higher even though ADP is not necessarily in sync with the government’s NFP number on a month to month basis. I would agree. Right now, the expectation is for only 650,000.

The initial claims data were also better than expected at 385,000 vs 390,000 expected. That’s a level lower than at equivalent periods in the last three recoveries (see last week’s post). And initial claims have declined more than 30% since April. That’s a huge move. It’s telling you that we are moving aggressively lower on jobless claims relative to the last three cycle turns, which could also mean upside surprises on how quickly the unemployment rate drops.

Employment is a lagging indicator. So, this should be expected given the massive uptick in US economic growth fuelled by government transfer payments. Where the rubber hits the road is in the baton handoff to consumers without government stimulus come Fall.

If we see prints like these, by the August Fed meeting we could see more talk of tapering asset purchases. One move by the Fed to consider is where they replace all or part the MBS portion of QE with Treasury purchases. Given how hot the US housing market is, it is reasonable to assume that the MBS purchases part of QE is more vulnerable to a taper than the Treasury part.